McKinsey: global data flows will bolster economic connectedness

The McKinsey
Global Institute has published new research that predicts global flows of trade will triple by
2025, sped up by the spread of digital technologies. It points to an 18-fold increase in
cross-border internet traffic since 2005, and says the next era of globalisation
will centre on the “rise of a global knowledge economy”.

The research draws on an MGI database that tracks inflows and outflows of each of five types of
“flow” – goods, services, finance, people and data – for 195 countries from 1980 to
2012. McKinsey said rising prosperity in the emerging world and the spread of internet and
digital technologies mean cross-border movement of goods, services, finance, people and data
already contribute 15-25% of GDP growth and such flows could triple in the next decade.

The report introduces a McKinsey Global Institute Connectedness Index, which ranks 131 countries
on their participation in each of the five types of flow. Overall, developed countries remain more
connected across the full range of global flows than emerging markets, but the latter are rising
quickly. Germany ranks first, the US third and the UK fifth.

The report highlights the fact that global online traffic grew 18-fold between 2005 and 2012,
and says it could increase eight-fold more by 2025. Cross-border e-commerce has grown from almost
nothing in 2005 to 13% of global goods trade in 2013. The report notes that Skype has grown from
zero to 40% of international voice calls over the past decade. And it cites that on eBay, more than
90% of commercial sellers ship to customers in other countries, compared with less than 25% of
individual small businesses.

The report shows that countries with a larger number of connections in the global
network of flows increase their GDP growth by up to 40% more than less connected countries do.
It predicts that cross-border flows will reach $54tn to $85tn a year by 2025, up from $26tn in
2012.

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